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California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along...

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Posted by:   bobo 8/16/2006 8:59 AM

This is a must read Amicus brief from the California AG, who apparently has been paying attention.

It basically shreds the arguments of the Rocker/Gradient legal team.

What is noteworthy is that the California AG felt compelled to write it - last time I checked, the AG is a busy guy, and has other things on his plate.

And yet he finds this case significant enough to write one of the most thorough and compelling briefs I've ever read.

Score a big one for the good guys.

Did I mention that this time is indeed different?

---------------

An article came out today in the Salt Lake Tribune commenting on the complete about-face from the state on the anti-NSS law.

Here's my favorite line from the piece. I literally howled with laughter when I read it:

"What this does is give everyone time to sit down and talk and see if we can find some common ground and address everyone's concerns," said Travis Larson, spokesman for the association that represents the nation's stockbrokerages."

 Huh.

Yeah, I'll just bet. Hey, your members are stealing all our money while the violate the law of the land, and the SEC and the DTCC are standing around helping them, and our retirements are gone and we will be working as greeters at Wal-Mart at eighty to pay for our cooking oil, and nobody is stopping them..

That's my concern. Now, let's sit down and chitty-chat about how the thieving rat b#stards on Wall Street are leaving us so brutalized we feel like we've been gang-raped by mountain men, and you can find some common ground to address that concern.

See? That was fun. Meanwhile, the law that would have stopped them from robbing us with impunity is stalled, on hold, while we sip frappuchinos and gab about our "issues", like a group of teenage girls at the mall. That's kind of neat for the crooks, but how again does it do anything for me...?

Can you believe this crap?

 
Copyright ©2006 Bob O'Brien
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Comments (18)
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By gregcable2002 on 8/16/2006 10:35 AM
We have investors from all walks of life getting involved in this issue.Anyone and everyone who has money in the market needs to pay close attention now.The cat's not going back in the bag,I don't care how much money or clout the counterfieters have.The free lunch program is getting CANCELED.
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By jcline on 8/16/2006 11:26 AM
I can believe the crap, same song for the last 6 years. UGH!
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By piddly_sum on 8/16/2006 11:39 AM
Byrne's analogy at the end of the article is quite apt. Same as with Big Tobacco, the securities industry no more wants to actually kill their customers so long as they have blood to be harvested.
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By mhelburn on 8/16/2006 12:17 PM
So the regulator in Utah probably is getting a payoff for this... Guess the AG in CA hasn't been approached....but filing that brief kinda puts that sort of thing out of the realm of possibility. "How would you like a nice cushy job at XYZ Brokerage with a nice sign on bonus?" Who has the negotiating rights in Utah? This is a law. Did the legislature go back and vote on this after it was signed? Did the regulator just tell the boys that he wasn't going to enforce the law for another 8 months?
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By mhatmccane on 8/16/2006 12:36 PM
Perhaps the CA AG brief bodes well for the NFI shareholder suit. One can hope.

As regards Utah - if the UT AG wants to "avoid a costly legal fight", perhaps the State could save some money by cutting his budget No play, no pay.

Has anyone heard from the Governor and the Legislature in Utah? Does the AG get to decide which laws he wants to enforce?
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By cutty on 8/16/2006 12:39 PM
Well, the whole CA attorney general's team went through the defendant's arguments with well sharpened machete's . The result does'nt look pretty (For Gradient and RP).
Bobo, apparently, the AG himself did not do it personally, but he asked his team to do it. Will be interesting to see if the b....ds can dodge this one
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By Mr. Ponzi on 8/16/2006 1:54 PM
It's time they called naked shorting, FTD's, counterfeit stocks what is really is... the biggest Ponzi Scheme the world has ever seen.

Try and get your stock from your broker and you get every excuse in the world until they take some suckers stock held in safekeeping and put in back in street name.
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By hwh on 8/16/2006 2:10 PM
Sounds like the Senate Banking Committee is going to be dismantled alnong with the SEC. The other (uncaptured) committees are trying to get on the right side of the train.

Isn't Sen. Spector a short timer?

Mack at MS & Naz's husband at FED, Chris Cox in the middle. There is plenty of clout to get this job done if they would get onboard...hwh
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By Mr. Ponzi on 8/16/2006 3:07 PM
Those banking scumbuckets, I wonder if they are benefiting from the Ponzi Scheme?
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By Geektools on 8/16/2006 6:01 PM
Here is the case that the Gradient used in the appeal and the California AG said was flawed in his brief.


Filed 3/8/04


CERTIFIED FOR PARTIAL PUBLICATION*



COURT OF APPEAL, FOURTH APPELLATE DISTRICT


DIVISION ONE


STATE OF CALIFORNIA




SCOTT BOWEN et al.,

Plaintiffs and Appellants,


v.


ZIASUN TECHNOLOGIES, INC.,


Defendant and Respondent.
D041142



(Super. Ct. Nos. GIC762921 &

GIC772344)




APPEAL from a judgment of the Superior Court of San Diego County, J. Richard Haden, Judge. Affirmed.


James A. Shalvoy for Plaintiffs and Appellants.

Smith, Chapman & Campbell, John S. Clifford and Stephanie P. Alexander for Defendant and Respondent.


This is an appeal from a grant of summary judgment in favor of defendant Ziasun Technologies, Inc. (Ziasun) on two consolidated actions filed by plaintiffs Scott Bowen and Lief Aa. Fredsted (together sometimes, plaintiffs), which alleged that they were defrauded by a "pyramid" or "Ponzi" scheme orchestrated by foreign brokerage houses from which they purchased shares of stock. The court granted summary judgment in favor of Ziasun, finding that there was no legal basis for or evidence to support plaintiffs' claims against Ziasun.

On appeal Bowen and Fredsted assert that the court erred in granting summary judgment when it found that (1) plaintiffs' claims brought under Business & Professions Code section 172002 had no application to the securities transactions at issue; (2) plaintiffs failed to provide any admissible evidence that Ziasun made any misrepresentations to plaintiffs and that Ziasun was not an offeror of securities; (3) no evidence supported plaintiffs' conversion and conspiracy claims; and (4) plaintiffs were not entitled to a continuance of the hearing on the summary judgment motion to conduct further discovery. We conclude that the court did not err in granting summary judgment or in denying leave to conduct additional discovery and therefore affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A. Plaintiffs' Allegations

Bowen is a resident of Australia. Fredsted is a resident of Norway. Ziasun is a publicly traded Nevada corporation that formerly had its headquarters in San Diego County.

In February 2001 Bowen filed a complaint in the San Diego Superior Court against Ziasun and others.3 Bowen's complaint alleged that Ziasun, acting in concert with others, sold approximately $365,625.50 of its stock and the stock of other publicly traded companies to Bowen by making misstatements and omissions of material fact. Bowen alleged that Ziasun failed to disclose that it was using investors' funds to perpetrate a pyramid or Ponzi scheme and that Ziasun's stock had little or no market value.

Specifically, Bowen alleged that in 1998, he was contacted by defendant Frank Robinson, who held himself out to be a senior consultant at Amber Securities Corporation (Amber), now allegedly known as defendant World Trade Financial Corporation (World Trade), who solicited him to invest in a company called Titan Motorcycles of America, Inc. (Titan). At that time Bowen did not invest.

In June 1999, Robinson contacted him again, soliciting an investment in Ziasun. Robinson stated that Amber had changed its name to Capital Assets, Ltd. (Capital). Based upon Robinson's solicitation, Bowen purchased 1,000 shares of Ziasun stock. However, he was not told that (1) the stock was restricted; (2) the funds he was investing would be used to finance criminal behavior, securities fraud, pornography, false corporate disclosures, and illegal business practices; (3) returns would be paid from new investors' funds; and (4) there was little or no market for the stock.

Thereafter, defendant Robert Mason contacted him and stated that he would now be handling his account on behalf of Capitol, and solicited him to invest in several other companies. Mason introduced him to a Lynn Briggs, who Mason described as being a financial and investment consultant for Capital. Mason told Bowen that Briggs and Capital had a "close association with Ziasun" and other companies, including Chequemate International, Inc. (Chequemate), Loraca International, Inc. (Loraca), Asia4Sale, Inc. (Asia4Sale) and Castpro.com, Inc. (Castpro). Briggs touted Ziasun and the other companies for investment. Briggs told Bowen that no investor had ever lost money with these companies because of Capital's "close association and intimate knowledge" of the companies being recommended. Based upon the misrepresentations made by Robinson, Mason and Briggs, Bowen bought stock in Ziasun, Chequemate, Loraca, Asia4Sale, Castpro and Novamed, Inc, (Novamed), at a total cost of $365,625.50. Bowen alleged Robinson, Mason and Briggs were acting as agents for the companies in which he invested, including Ziasun. Further, Bowen alleged that their actions were taken at the direction of defendant Bryant Cragun, an alleged investment advisor and fundraiser for the companies Bowen invested in, including Ziasun.

The complaint stated causes of action for unfair, unlawful and deceptive business practices under section 17200, common law fraud, securities fraud, injunctive relief, conversion and conspiracy.

In August 2001 Fredsted filed an action in the San Diego County Superior Court against Ziasun, as well as other individuals and one corporation (see fn. 2, ante). Similar to Bowen's complaint, Fredsted alleged that Ziasun, acting in concert with other individuals and entities, induced him to buy $108,840.10 worth of stock by making misstatements and omissions of fact. However, Fredsted did not allege that he ever purchased any Ziasun stock. Fredsted's complaint mirrored Bowen's in its allegations of a pyramid or Ponzi scheme and stated the same causes of action, with the exception of alleging contact with different individual agents who solicited his investment, and some different companies in which he invested.

Fredsted's complaint alleged that in January 2000 he was contacted by defendant Richard Swatman. Swatman told him that he was a broker and portfolio advisor with Capital and solicited his investment in Chequemate. He purchased 250 shares based upon the representations of Swatman.

Shortly after the initial purchase, he was advised of an increase in the price of Chequemate and was solicited by Swatman to purchase additional shares. After he agreed to buy the additional shares, Swatman told him that the stock was restricted and could not be sold for one year. Fredsted also alleged that he was not advised that (1) funds invested by him would be used by the defendants to finance activities involving criminal behavior, securities fraud, pornography, false corporate disclosures, and illegal business practices; (2) returns on his investment would be made from new investors' funds, i.e., a pyramid or Ponzi scheme; and (3) that little or no market existed for the Chequemate stock.

According to Fredsted, shortly after he opened his account with Capital defendant James Howard contacted him and advised him that he would now be his account manger, and solicited him to invest in Asia4Sale, Castpro, RealestateFederation.com (REF) and Broadcast International (Broadcast). Howard arranged a meeting between himself and Briggs, who Howard represented to be a consultant for Capital and as having a "close association" with the companies being touted. At the meeting, Briggs touted the stock of several companies and represented that he was closely affiliated with Broadcast. Between January and December 2000, based upon the misrepresentations of Swatman, Howard and Briggs, Fredsted invested $108,840.10 in the stock of Broadcast, Chequemate, REF, Asia4Sale, and Castpro. Fredsted further alleged that their actions were taken at the direction of defendant Cragun, who allegedly was an investment advisor and fundraiser for the companies in which he invested, and Ziasun as well.

The court thereafter consolidated Bowen's and Fredsted's actions.

C. Summary Judgment Motion

1. Ziasun's moving papers

In July 2002, Ziasun brought a motion for summary judgment or, alternatively, for summary adjudication of issues. Ziasun argued that the first through third causes of action brought under section 17200 were without merit because that statute did not apply to securities transactions. Ziasun argued that the fourth cause of action for fraud failed as Bowen and Fredsted could not show any facts demonstrating that plaintiffs had purchased Ziasun stock or that Ziasun defrauded them. Ziasun argued that the fifth cause of action for securities fraud was without merit because (1) there were no facts showing that it violated the law on securities fraud; and (2) Ziasun was not a seller or offeror of securities. Ziasun asserted that the sixth cause of action for injunctive relief failed as there was no viable cause of action to support this remedy. Ziasun asserted that the seventh cause of action for conversion was without merit as there was no identifiable sum of money that it was unlawfully interfering with. Finally, Ziasun argued that the eighth cause of action for conspiracy was without merit as there was no evidence that Ziasun conspired with anyone else to commit any wrongdoing.

In support of the motions, Ziasun submitted the declaration of D. Scott Elder, the vice president of INVESTools, Inc., the successor merger company of Ziasun. According to Elder, Fredsted was never a shareholder of Ziasun, and Ziasun never had any direct dealings with either plaintiff. Elder also stated that Ziasun was never the parent company of Asia4Sale and never exercised any control over that company. Ziasun had no part in any alleged scheme against plaintiffs and, to Elder's knowledge, no Ziasun employees ever engaged in any insider trading. According to Elder, Ziasun never converted anything belonging to plaintiffs and never directed any communication to plaintiffs. Elder also denied that Ziasun was engaged in any conspiracy with any other defendants to deprive plaintiffs of money or property.

According to Elder, defendant Cragun resigned from Ziasun as a consultant in 1998 and never held a position with Ziasun as an officer, director, agent or employee at the times relevant to the plaintiffs' complaint. Similarly, Elder stated that Briggs ceased his affiliation with and resigned from Ziasun in 1998, before the events alleged in plaintiffs' complaint. Elder also stated that none of the other defendants was ever an agent or employee of Ziasun.

Ziasun attached to its motion Fredsted's responses to Ziasun's requests for admissions, wherein Fredsted stated that he lacked sufficient information or belief to admit or deny whether he had any facts supporting his allegations. Ziasun also submitted both plaintiffs' responses to interrogatories, wherein plaintiffs did not identify any facts supporting their allegations.

2. Discovery dispute

Following the filing of plaintiffs' complaint, Ziasun obtained an order under Code of Civil Procedure section 1030 requiring plaintiffs to each post a bond of $25,000 within 10 days to secure payment of costs to Ziasun should it prevail, as a condition of allowing plaintiffs' action to proceed.4 Plaintiffs were unable to post the bond within the 10 days ordered by the court and Ziasun brought a motion to dismiss the complaint.

In June 2002, plaintiffs noticed a deposition for Ziasun's person most knowledgeable (PMK). Ziasun objected to the deposition notice on the basis that (1) plaintiffs had not timely posted the bond ordered by the court and the action was therefore subject to dismissal; and (2) the deposition was overbroad, burdensome and harassing, seeking 78 categories of issues for the PMK to testify about and 212 categories of documents. Ziasun did not appear at the deposition.

In July 2002, plaintiffs brought an ex parte application to shorten time for an order compelling the deposition of Ziasun's PMK. The court denied plaintiffs' motion without prejudice on the basis that Ziasun's motion to dismiss was pending. In July 2002, the court denied Ziasun's motion to dismiss as the bonds had been posted, albeit in an untimely fashion. The court also thereafter granted Ziasun's ex parte application to continue the trial date to October 2002.

In August 2002, plaintiffs brought a second ex parte application for an order shortening time to bring a motion to compel the deposition of Ziasun's PMK. Plaintiffs argued that they had noticed the deposition of Ziasun's PMK, but Ziasun did not appear for the deposition and the deposition was necessary to oppose Ziasun's pending motion for summary judgment. The court took Ziasun's motion for summary judgment off calendar and ordered that each side was "entitled to depose the parties and persons most knowledgeable."

On September 3, 2002, plaintiffs renoticed the deposition of Ziasun's PMK for September 18, 2002. However, on September 6, 2002, the court reset Ziasun's summary judgment motion for September 13, 2002, to be heard at the same time as the parties' discovery disputes.

3. Plaintiffs' opposition

In opposing Ziasun's motion, plaintiffs (1) objected to the evidence submitted by Ziasun; (2) argued that triable issues of fact existed precluding summary judgment; and (3) argued that the motion should be denied or continued to allow them to conduct further discovery. However, plaintiffs did not submit any legal authority disputing the legal basis for Ziasun's summary judgment motion.

In opposition to Ziasun's motion for summary judgment, plaintiffs submitted the declaration of their counsel, James Shalvoy, their own declarations, and documentary evidence. In Shalvoy's declaration he referenced several items of documentary evidence submitted with plaintiffs' opposition. First he identified excerpts from a deposition transcript in another case wherein a witness by the name of Allen Hardman, president of Ziasun, testified that Briggs worked for Cragun in some unknown fashion. He also attached a copy of a lawsuit filed by Cragun in which Cragun stated that he had served as an investment adviser and fundraiser for Ziasun, Titan, Chequemate, Dynatec, Loraca and Bevex. Shalvoy also attached a copy of a Nevada certificate of corporate information showing that as of April 2000 Cragun was president and Briggs was secretary and treasurer of a company named Applied Technology Consultants, Inc. Shalvoy attached a Nevada annual list of officers, directors and agents for Ziasun, filed in April 1999, wherein Briggs's name was crossed out as president of Ziasun and the name Tony Tobin is handwritten in. Hardman was listed as a director of Ziasun. Shalvoy attached a copy of a 1998 Nevada annual list of officers, directors and agents for a company called Best Way, USA, showing Briggs as president. .

Shalvoy also attached a copy of an article from the South China Morning Post, which alleged that Ziasun, when it was known as Momentum Internet, "ran sex-related businesses" and "was behind a stable of porn Web sites and phone chat lines that promised Bangkok Babes and China Dolls." Shalvoy also attached a copy of a 1999 press release that stated that Amber Global Limited, acting as agent for Amber, was successfully prosecuted for dealing in securities while unregistered. Shalvoy also detailed his attempts to take the deposition of the PMK for Ziasun and requested that Ziasun's motion be denied because plaintiffs had been unable to conduct discovery necessary to oppose the motion.

Fredsted's declaration essentially mirrored his complaint, with a few items of documentary evidence attached. It detailed his interactions with Swatman, Howard and Briggs, their representations to him, and their alleged improper activities concerning the stock in which he invested, and his purchase of stock in Broadcast, Chequemate, REF, Asia4Sale, and Castpro, all as detailed above. Fredsted also attached to his declaration business cards for Briggs, showing him to be a managing director of The Amber Group and an "investment relations officer" for Broadcast. He also attached a copy of an article from the Wall Street Journal concerning, among other things, Ziasun's alleged activities. He attached a brochure he received from Howard that stated that Ziasun was the "parent company" of Asia4Sale. He stated that his investments were now worthless.

Bowen's declaration also essentially mirrored his complaint, again, with a few additions. He related his contacts with Robinson, Mason and Briggs, their solicitation of his investment in Ziasun, Chequemate, Loraca, Asia4Sale and Castpro.com, and the alleged illegal and improper activities surrounding his stock that he purchased. He also detailed the purchase dates of his stock in Ziasun and attached invoices for those stock purchases. He attached an e-mail correspondence he received describing the relationship between Ziasun and Asia4Sale. He stated that the investments he made were now worthless.

Ziasun filed a reply to plaintiffs' opposition, not only addressing plaintiffs' opposition on the merits, but also filing written objections to much of plaintiffs' evidence.

D. Court's Ruling

In September 2002, the court granted Ziasun's motion for summary judgment by telephonic ruling. The court found that the first through third causes of action brought under section 17200 failed as a matter of law because section 17200 "does not apply to securities transactions." The court found that the fourth cause of action for fraud did not have merit because plaintiffs had not produced evidence that they ever purchased shares of Ziasun. The fifth cause of action for corporate securities fraud failed because plaintiffs could not show that Ziasun violated the statute, was a seller or offeror of securities or made any misrepresentation to plaintiffs. The sixth cause of action for injunctive relief was found to have no merit because no specific identifiable sum of money was involved.5 The eighth cause of action for conspiracy failed because plaintiffs could not show that Ziasun participated in any concerted action, or that a common plan to commit tortious acts existed. The court also found that the plaintiffs could not demonstrate good cause for a continuance of the motion for summary judgment to conduct further discovery.

Plaintiffs requested oral argument. At that hearing, the court addressed plaintiffs' request for further discovery based upon their inability to proceed with the deposition of Ziasun's PMK. The court stated that its notes showed that as of the ex parte hearing on August 15 it had given them the permission to go forward with the deposition of the person most knowledgeable for Ziasun. Counsel for Ziasun argued that plaintiffs did not move forward with discovery on a timely basis, never made efforts to resolve the discovery dispute and did not try to set the deposition of Ziasun's PMK in a timely manner after the court gave it permission to take that deposition. The court took the matter under submission and thereafter confirmed its telephonic ruling. In doing so, the court specifically addressed plaintiffs' request for further time to conduct discovery:

"The Court notes that at an ex parte on 7/17/02 the court continued the [trial] date to October 18, 2002. At ex parte on 8/15/02 each side sought a motion to compel discovery. The Court set a global motion for September 13, 2002. The Court stated each side was entitled to reasonably depose the parties and the Persons Most Knowledgeable (PMK). However, Plaintiff[s] failed to ever accomplish this."


This appeal follows.

DISCUSSION

I. Standard of Review

On an appeal from an order granting summary judgment, we independently examine the record to determine whether a triable issue of material fact exists. (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 767.) In performing our review, we view the evidence in the light most favorable to the losing parties (here Bowen and Fredsted), resolving any evidentiary doubts or ambiguities in their favor. (Id. at p. 768.)

"[T]he party moving for summary judgment [(here Seacoast)] bears the burden of persuasion that there is no triable issue of material fact and that [it] is entitled to judgment as a matter of law." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850. fn. omitted (Aguilar).) "A defendant [moving for summary judgment] bears the burden of persuasion that 'one or more elements of' the 'cause of action' in question 'cannot be established,' or that 'there is a complete defense' thereto. [Citation.]" (Ibid.; Code Civ. Proc., § 437c, subd. (o).6) In such a case, the defendant bears the "initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact." (Aguilar, supra, 25 Cal.4th at p. 850.)

If the defendant meets its burden of production, the burden shifts to the plaintiff to make its own prima facie showing of the existence of a triable issue of material fact. (Aguilar, supra, 25 Cal.4th at p. 850.) "There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Ibid.)

II. Analysis

A. Section 17200 Claims

Bowen and Fredsted assert that the court erred in finding that section 17200 does not apply to securities transactions. Although this is a question of first impression in California, we find federal and out-of-state authority persuasive on this issue and conclude that the court did not err in granting Ziasun's motion on this basis.

Section 17200 provides in part: "[U]nfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." Section 17200 is known as California's "little FTC Act," which mirrors its federal counterpart, the Federal Trade Commission (FTC) Act, 15 United States Code section 45 et seq. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1263-1264.) Historically, the FTC has not viewed the FTC Act as reaching securities transactions. (Russell v. Dean Witter Reynolds, Inc. (Conn. 1986) 510 A.2d 972, 977 (Russell) ["The FTC has never undertaken to adjudicate deceptive conduct in the sale and purchase of securities"].)

Further, federal cases (some, admittedly unpublished) have held that California's section 17200 also does not apply to securities transactions. (See Dietrich v. Bauer (S.D. NY 1999) 76 F.Supp.2d 312, 351; Perera v. Chiron Corp. (N.D.Cal. 1996) 1996 WL 251936; Shearson Lehman Brothers, Inc. v. Greenberg (C.D.Cal. 1993) [1992-93 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 97,409, affd. Shearson Lehman Brothers Inc. v. Greenberg (9th Cir. 1995) 60 F.3d 834 ["Cal. Bus. & Prof. Code § 17200 is inapplicable to securities transactions"].)7

Additionally, at least 15 other jurisdictions that have considered whether investment securities are within the scope of their consumer protection statutes have reached the same conclusion, holding that claims based upon securities violations are not actionable under those statutes. (See Spinner Corp. v. Princeville Dev. Corp. (9th Cir. 1988) 849 F.2d 388 [Hawaii law] (Spinner); Russell, supra, 510 A.2d 972 [Conn. law].)8 Only three states have ruled that their little FTC acts apply to securities transactions. (See Denison v. Kelly (M.D.Pa. 1991) 759 F.Supp. 199 [Pa. law]; Onesti v. Thomson & McKinnon Securities, Inc. (N.D.Ill. 1985) 619 F.Supp. 1262 [Ill. law]; State ex rel. Corbin v. Pickrell (Ariz. 1983) 667 P.2d 1304 [Ariz. law].)

No published decision in California has yet reached the issue. However, based upon persuasive federal and out-of-state authority,9 we conclude that section 17200 does not apply to securities transactions. Spinner, supra, 849 F.2d 388, a Ninth Circuit case interpreting Hawaii law, is instructive.

In Spinner, the Ninth Circuit was interpreting Hawaii's little FTC Act, which is almost identical to California's. (Spinner, supra, 849 F.2d at p. 389.) The court there concluded that in enacting Hawaii's little FTC Act, the "primary intent of the legislature was to protect consumers from unethical business practices resulting in relatively small commercial injuries. . . . Actions involving securities, such as the ones alleged in this case, are not typically on the agenda of consumer advocates." (Id. at p. 391.) The court there also relied upon the fact that its federal counterpart, the FTC Act, "has not been applied in a securities context since 1923. [Citation.]" (Spinner, supra, 849 F.2d at p. 391.)

The Spinner court also relied on decisions interpreting other states' little FTC Acts, including Russell, supra, 510 A.2d 972, 977, wherein that court stated: "The FTC has never undertaken to adjudicate deceptive conduct in the sale and purchase of securities, presumably because such transactions fall under the comprehensive regulatory umbrella of the Securities and Exchange Commission. . . . [T]he plaintiff has cited no case in which the FTC or a federal court has applied the FTC Act to a securities transaction and we have found none. . . . Consequently, in this case, taking our guidance from the FTC, we must construe [the little FTC Act] as not purporting to cover transactions for the purchase and sale of securities." (Citations omitted, fn. omitted.) The Connecticut statute interpreted in that case is also similar to Hawaii's and our own. (Spinner, supra, 849 F.2d at pp. 391-392.)

There is nothing to suggest that the intent of the California Legislature in enacting section 17200 was any different from the intent of the Hawaiian Legislature: "to protect consumers from unethical business practices resulting in relatively small commercial injuries." (Spinner, supra, 849 F.2d at p. 391.) Further, California cases hold that "we may turn for guidance to the jurisprudence arising under the 'parallel' [citation] section 5 of the [FTC Act] [citation]. 'In view of the similarity of language and obvious identity of purpose of the two statutes, decisions of the federal court on the subject are more than ordinarily persuasive.' [Citations.]" (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 185.) Because, as discussed, ante, the FTC has never applied the FTC Act to securities transactions, and nothing in section 17200 indicates a different intent, we are persuaded that section 17200 should also not reach such transactions.

In support of their assertion that section 17200 does apply to securities transactions, plaintiffs cite Roskind, supra, 80 Cal.App.4th 345. However, that case is inapposite.

In Roskind, the court only held that federal securities laws do not preempt section 17200 claims, concluding: "Application of state laws such as [section 17200] to forbid the practice of trading ahead would not impair or conflict with any provision of federal law, but would be consistent with the purposes and aims of federal law." (Roskind, supra, 80 Cal.App.4th at p. 354, fn. omitted.) In doing so, the Roskind court relied in part upon the federal securities law, in particular, 15 United States Code section 78bb, which provides that "[t]he rights and remedies provided by this chapter shall be in addition to any and all other rights and remedies that may exist in law or in equity." (Roskind, supra, 80 Cal.App.4th at p. 355.)

However, we are not presented here with the question of whether federal securities law preempts section 17200, but rather whether that section and its federal counterpart apply to securities transactions at all. Indeed, Roskind rejected as "dictum" the statement in the unpublished federal court decision Shearson Lehman Brothers, Inc. v. Greenberg, supra, Fed. Sec. L. Rep. (CCH) ¶ 97,409, that "it seems likely that [section] 17200 is preempted entirely by federal securities laws. [Citation.]'" (Roskind, supra, 80 Cal.App.4th at p. 355.) The court in Roskind characterized that statement as dictum because the court in Shearson Lehman was presented not with the issue of preemption that was decided in Roskind, but rather decided (as we do here) that section 17200 "did not apply" to securities transactions. (Roskind, supra, at p. 355.) The Roskind case is inapplicable and does not support a conclusion that section 17200 applies to securities transaction.

In sum, we conclude, based upon the fact that the FTC Act has never been applied to securities transactions, and federal and state authority from 15 other jurisdictions have held that their little FTC Acts do not apply to securities transactions, section 17200 does not apply to securities transactions and the court did not err in dismissing plaintiffs' first three causes of action on that basis.

B. Fraud Claim

Bowen and Fredsted next assert that the court erred in dismissing their fourth cause of action on the basis that they presented no admissible evidence that they ever purchased Ziasun shares or that Ziasun made any misrepresentation to them. This contention is unavailing.

1. Evidentiary issues

Before we turn to the merits on this claim, we must address an evidentiary issue raised by plaintiffs. They assert that because Ziasun objected to all of their evidence submitted in opposition to the motion, the court did not rule on the objections, and Ziasun did not make a request that it do so at the hearing, all of their evidence must be deemed admissible and part of the record on review. We conclude that this assertion does not support a reversal of the court's decision.

At first blush, plaintiffs' assertion appears to have some merit. In Sambrano v. City of San Diego (2001) 94 Cal.App.4th 225 (Sambrano), a decision by a different panel of this court, we held that it was not enough for a trial court to state that it has only considered admissible evidence, rejecting the holding of Biljac Associates v. First Interstate Bank (1990) 218 Cal.App.3d 1410. Rather, we held in Sambrano that it is incumbent upon the trial court to make specific rulings on a party's objections to evidence and, if the party making the objections does not make a request that the court rule on them at the hearing, the objections are deemed waived and all evidence may be considered by the reviewing court. (Sambrano, supra, 94 Cal.App.4th at pp. 234-238.) However, despite that conclusion, in Sambrano we elected not to treat the objections to the plaintiffs' evidence as having been waived. We held that this was proper as we could determine from the record that the evidence would have been inadmissible as a matter of law. (Id. at p. 241.)

Here, we elect, as we did in Sambrano, to not consider all evidence as having been admitted on a waiver theory. Rather, as we discuss in the following section, because we may easily determine that plaintiffs' evidence as a matter of law did not create a triable issue of fact, we need not decide whether the court impliedly overruled Ziasun's objections to evidence when it failed to expressly rule upon them.

2. Analysis

In order to prevail on a claim of fraud, a plaintiff must prove (1) the defendant knowingly made a false representation; (2) the representation was made with the intent to deceive or induce reliance by the plaintiff; (3) justifiable reliance by the plaintiff; and (4) resulting damages. (Wilkins v. National Broadcasting Co. (1999) 71 Cal.App.4th 1066, 1081.

Here, we decline to decide if the court was correct in finding that there was no evidence proffered by plaintiffs to show that they purchased stock in Ziasun. Rather, we affirm the court's ruling because no evidence was presented that Ziasun made any misrepresentations, either directly or through agents, to Bowen or Fredsted.10

Bowen and Fredsted detailed in their declarations their interactions with various individuals who allegedly induced them to purchase shares of stock. However, plaintiffs submitted no evidence showing that any of them, at the time plaintiffs purchased their stock, were agents of Ziasun. The evidence at most showed that at some time previous to the relevant time period, Briggs and Cragun worked for Ziasun in some capacity. Indeed, Ziasun even admitted as much in their moving papers. However, nothing was submitted showing that they or any of the other individuals with whom they dealt was employed by, or affiliated in any way with Ziasun at the relevant time. In fact, plaintiffs did not produce any evidence that their monies were used as part of a pyramid or Ponzi scheme, or that any of the other alleged wrongdoing occurred. The only evidence presented was that certain individuals induced them to purchase stock that is now worthless. There is no triable issue of material fact with respect to plaintiffs' claim for fraud.

C. Securities Fraud Claim

Plaintiffs assert that there is a triable issue of fact that they can prove a claim for securities fraud. This contention is unavailing.

Corporations Code section 25401 provides:

"It is unlawful for any person to offer or sell a security in this state or buy or offer to buy a security in this state by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading."


To state a claim under this statute, a plaintiff must show thus show that the defendant was "selling" or "offering" a stock to the plaintiff, while making a false statement by means of a written or oral communication. The statute is not, however, intended to reach corporate issuers such as Ziasun, unless they were engaged in active solicitation or trading of their stock. (Courtney v. Waring (1987) 191 Cal.App.3d 1434, 1440.)

As with the fraud claim, plaintiffs submitted no evidence that could establish a claim for securities fraud. There was no evidence produced that Ziasun was itself engaged in solicitations for the purchase of its stock, nor that it made any false statements in communications, either directly, or through its agents. The court did not err in granting summary judgment on the fifth cause of action for securities fraud.

D. Conversion Claim

Plaintiffs assert that triable issues of material fact prevented a summary adjudication of their claim for conversion. We reject this contention.

Conversion is defined as an act of willful interference with personal property, done without lawful justification, by which any person entitled thereto is deprived of the use and possession of the personal property. (de Vries v. Brumback (1960) 53 Cal.2d 643, 647.) However, "[m]oney cannot be the subject of [a claim for] conversion unless a specific identifiable sum is involved." (5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 614, p. 710, italics omitted.)

Here again, plaintiffs submitted nothing showing that Ziasun unlawfully interfered with any personal property of plaintiffs. Therefore, we need not decide if plaintiffs' identification of specific amounts of sums they invested made them sufficiently identifiable to support such a claim. The court did not err in granting summary judgment on the fifth cause of action for conversion.

E. Conspiracy Claim

Plaintiffs assert that the court erred in granting summary judgment on the seventh cause of action for conspiracy. This contention is unavailing.

"The elements of [an action for] civil conspiracy are the formation and operation of the conspiracy and damage resulting to plaintiff from an act [or acts] done in furtherance of the common design." (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 845-846.) A plaintiff asserting a conspiracy claim must produce evidence showing the formation of the conspiracy, its operation, an overt act or acts committed by one or more of the conspirators pursuant to the common design, and resulting damage to the plaintiff. (Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 631.)

For the same reasons as discussed with regard to the claims for fraud, securities fraud and conversion, plaintiffs cannot make a claim for conspiracy. There was no evidence submitted showing that the individual defendants, in inducing plaintiffs to purchase stock, were part of a conspiracy with Ziasun, nor what that alleged conspiracy was. The court did not err in granting summary judgment on the seventh cause of action for conversion.11

F. Request for Continuance To Conduct Discovery

Code of Civil Procedure section 437c, subdivision (h) provides: "If it appears from the affidavits submitted in opposition to a motion for summary judgment or summary adjudication or both that facts essential to justify opposition may exist but cannot, for reasons stated, then be presented, the court shall deny the motion, or order a continuance . . . ." "The non-moving party seeking a continuance 'must show: (1) the facts to be obtained are essential to opposing the motion; (2) there is reason to believe such facts may exist; and (3) the reasons why additional time is needed to obtain these facts. [Citations.]' [Citation.] The decision whether to grant such a continuance is within the discretion of the trial court." (Frazee v. Seely (2002) 94 Cal.App.4th 627, 633.) Consequently we review the decision under the deferential abuse of discretion standard.

The summary judgment motion was heard over a year after the filing of plaintiffs' complaint. No reason is given by plaintiffs as to why they failed to conduct all necessary discovery during that time. Further, plaintiffs did not move expeditiously to obtain a date for the deposition of Ziasun's PMK after the filing of Ziasun's motion for summary judgment, even though the trial date was continued and the motion was taken off calendar and rescheduled for a date three weeks later than the original hearing date. The court did abuse its discretion in refusing to deny Ziasun's motion or grant a continuance of the hearing date in order to allow plaintiff to conduct further discovery.

DISPOSITION

The judgment is affirmed.

CERTIFIED FOR PARTIAL PUBLICATION


NARES, Acting P. J.

WE CONCUR:



McINTYRE, J.



O'ROURKE, J.
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By Geektools on 8/17/2006 5:47 AM
Check it out Bob, Ziasun case with Scott Bowen is the case that California AG used in the Amicus Brief

Christopher Carey, Cuban's tout wrote storys aboout Ziasun. He wrote a whole series.

.Muckraker digs up dirt on companies, posts it on Net
By CHRISTOPHER CAREY
OF THE POST-DISPATCH
06/13/2004
FREDON TOWNSHIP, N.J. - Floyd Schneider, a mortgage broker with a booming voice and boundless energy, has given three sermonettes at the small church he attends.

Two were about stock fraud. The third might have been, were it not for the pleadings of his wife, who urged him to focus on something more biblical.

Schneider, 47, leads a second life in cyberspace as the Truthseeker, nemesis of wayward capitalists.

It is both an avocation and an obsession. Since 1998, he has posted more than 30,000 messages on Internet stock boards, raising questions about companies and digging into the backgrounds of their officers, directors and consultants.

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He has been sued by three of his targets and racked up nearly $60,000 in legal bills.

Still he persists, driven by the belief that government regulators are overmatched in their battle against white-collar criminals.

"It comes down to a moral obligation to society," Schneider said.

The information that he uncovered or pieced together has helped the Securities and Exchange Commission and National Association of Securities Dealers bring cases against rogue companies, financiers and promoters.

Schneider is thinking about cutting back on his sleuthing, to spend more time with his three children, who range in age from 4 to 6 . But he remains captivated by a case that the SEC has declined to pursue.

"The biggest thing that's kept me going is ZiaSun," Schneider said. "It's something I've never been able to put to rest."

ZiaSun Technologies Inc., a little-known Internet holding company in California, sued Schneider and seven other Internet posters in federal court in 1999, saying they made false allegations as part of a conspiracy to drive down its stock price.

Bryant D. Cragun, who had been ZiaSun's chief executive, filed his own suit against the Internet posters in California state court.

"They wanted more than $1 million," Schneider said. "What did I do? Just posted my opinion on the Internet."

The defendants became known in Internet circles as the ZiaSun 8.

In its suit, ZiaSun claimed that the posters wrongly accused the company and its executives of trying to mislead and defraud investors.

Cragun alleged that the posters falsely linked him to overseas brokerages - regulators have since labeled them "boiler rooms" - that sold stock in ZiaSun, Chequemate International Inc. and other small U.S. companies to foreign investors.

ZiaSun and Cragun won court orders in early 2000 that barred Schneider from making further "false or defamatory" statements and required him to retract some information he had put on the message boards and a personal Internet site.

The plaintiffs and the members of the ZiaSun 8 agreed later that year to settle the broader case, with no finding of fault against any of the parties.

On the day the parties settled, Cragun said in a press release that he knew little about PT Dolok Permai, one of the overseas companies that had peddled ZiaSun's stock.

However, ZiaSun's own SEC filings listed Cragun's address as an $844,000 oceanfront condominium in Solana Beach, Calif., that real estate records show belonged to PT Dolok.

And documents filed in support of the injunction against Schneider show that Cragun was in close contact with the Indonesian firm. For instance, copies of letters that investors sent to their PT Dolok brokers after Schneider issued a negative report on ZiaSun bear markings that indicate that they quickly were forwarded by fax to Cragun.

What's more, court documents show that when Cragun and his wife divorced in 2001, he received their ownership interest in PT Dolok and Oxford International Management, a similar firm incorporated in the Philippines.

In other words, Cragun was part-owner of a firm that he claimed to know little about - and that had sold shares of his company to offshore customers.

Schneider has been perfecting his research methods since 1998, when he first accessed the Internet through an America Online dial-up account at his office.

He eventually found his way to the stock message boards and discovered a thread where people discussed how to use search engines to research stocks. He later taught himself how to sift through SEC filings online.

He also pulled together information on suspect companies and forwarded the dossiers to reporters.

Schneider's research has led to stories by the Wall Street Journal, Dow Jones News Service and other news organizations.

John Emshwiller, a national correspondent at the Wall Street Journal, included Schneider in his 2000 book about the online stock world, "Scam Dogs and Mo-Mo Mamas." He also did a story on Cragun and the boiler rooms in August that year.

Business Week featured Schneider in a December 2002 story on amateur investigators.

For a time, Schneider had his own Web site, where followers could pay $39.95 a year to read his reports. He even put out "sell" recommendations, in the same style as the "buy" reports issued by the promoters. His logo was a flying pig.

But when Schneider learned that charging for information could require him to register with the SEC as an investment adviser, he refunded the subscription money.

"I didn't need it," he said. "I do well enough in my mortgage business." Indeed, he generated $31.8 million in home loans last year, making him one of the top producers in his company.

The only way individual investors can overcome the limitations of the SEC and counter stock fraud is by taking charge of their own destinies and doing their own digging, he said.

"There's so much money involved, and (stock fraud is) so easy to do, and no one's preventing it," he said. "It's legalized thievery."




Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By Geektools on 8/17/2006 5:51 AM
Here is the story on Scott Bowen. California AG is using Bowen VS Ziasun in the brief.

Foreign investors see red over 3-D firm with local ties
By Christopher Carey
OF THE POST-DISPATCH
06/09/2004
Chequemate International Inc. hailed its 3-D television technology as the biggest revolution in home entertainment since the videocassette recorder.

Offshore brokerage firms pushing its stock told of looming deals with major players in the electronics and broadcasting industries.

Those pitches persuaded foreigners to snap up shares of the company, which was based in Salt Lake City and later called St. Charles home.

But after burning through all its cash and running up losses of more than $40 million, Chequemate has vanished, along with the overseas brokerages that promoted its shares.

The stock, which peaked at $18.44 in February 2000, today trades for a 20th of a cent.

Chequemate might appear to be just another casualty of Wall Street's technology bust, which brought down many high-flying stocks.

But an investigation by the Post-Dispatch shows that it was part of a worldwide ring that profited handsomely by selling questionable U.S. stocks overseas.

Chequemate was one of seven publicly traded U.S. companies with common ties. Today, Chequemate and three others are defunct or in limbo, two are in bankruptcy and one was bought out at less than $2 a share.

The main link was an American, Bryant D. Cragun, 57, a former stockbroker turned financier.

Securities and Exchange Commission filings, incorporation papers and other documents show that Cragun figured prominently in the creation or evolution of the companies, as an officer, director or financier.

The property settlement from his divorce in Arizona in 2001 also shows that he had an ownership interest in two of the unlicensed, offshore brokerages that promoted the companies' shares.

While most people who bought and held their shares in Chequemate and the other companies lost nearly everything they invested, Cragun became rich.

Another divorce document estimated the value of the assets he and his wife were dividing to be "in the middle eight figures," or roughly $50 million.

Cragun told The Wall Street Journal four years ago that the SEC had investigated the overseas stock sales. But the agency has not taken action.

The Post-Dispatch's investigation turned up additional information about Cragun's business dealings. For example:

The divorce case in 2001 shows that Cragun had an ownership interest in Oxford International Management, based in the Philippines, and PT Dolok Permai, which was incorporated in Indonesia and did business under the name International Asset Management. He previously denied, in court cases, that he had a stake in either operation.

Two partners in a Salt Lake City accounting firm that audited Chequemate's financial statements were barred by the SEC from auditing public companies in 2001 because of their role in a separate stock fraud case. One of them, R. Gordon Jones, is listed as an officer with Cragun in a company that owned part of Oxford.

A stock research firm in California, whose glowing report triggered a sharp rise in Chequemate's share price, was incorporated by disbarred lawyer Regis M. Possino, who has convictions for drug dealing and fraud. He had big stakes in several other companies that Oxford promoted. The SEC has since charged in a lawsuit that the stock-research firm, Access 1 Financial, and its president issued a false and misleading report on another company's stock as part of a "pump-and-dump" scheme.

A firm that Chequemate hired to promote its shares was controlled by Allen Z. Wolfson, a white-collar criminal who has since returned to prison on separate stock fraud and manipulation charges.




Chequemate provides a glimpse into the world of so-called penny stocks, where failures vastly outnumber successes.

The shares that foreign investors bought were routed offshore under an obscure SEC rule that lets companies sell stock privately to certain types of non-U.S. buyers. Under the rule, known as Regulation S, companies can avoid the time and expense of a registered stock offering by placing shares with "accredited investors," such as hedge funds and wealthy people.

One caveat: Such stock cannot be resold in the United States for one year. Because of the risk, the companies often discount the shares to overseas buyers.

But in the unlicensed, offshore brokerages known as "boiler rooms,'' the stock immediately is resold to foreign investors at big markups.

Chequemate got its start as a shell company, issuing stock for cash that it could use to buy a business.

Oxford and PT Dolok bought more than 1.3 million shares of Chequemate between 1994 and 1996, at prices ranging from $2.50 to $3.75 a share.

The company went through a succession of businesses - automated occupational safety training, financial planning, check and credit card processing - before making the leap into 3-D television in 1997. It paid $3 million for the rights to a 3-D imaging system developed by another Utah company, Applied Technology Group.

But the technology was hardly as cutting-edge as the companies claimed, said Michael Starks, a pioneer in the stereoscopy world, who worked as a consultant to Applied Technology. "It wasn't even true 3-D,"' he said.

Chequemate's system depended on a converter box tethered by a cord to cumbersome electronic goggles. The original boxes sold poorly, so the company hired a team of experts to improve the product.

Among them was Rob Boatright, an electronics engineer in Salt Lake City, who designed a digital box that was cheaper to produce and had better special effects. His one-year deal with Chequemate included options on 50,000 shares of stock.

While Boatright refined the technology, company executives worked to line up capital and customers. "We showed these units to a lot of people, and a lot of people invested," he said.

Blaine Harris was Chequemate's chairman and chief executive. He also was on the board of directors of Fountain Fresh International, another of the companies whose shares were peddled by the offshore boiler rooms.

What Chequemate lacked in revenue, it made up for in hype.

The company and the investor relations specialists it hired to promote the stock issued nearly 150 press releases between 1997 and 2001, hailing internal developments, acquisitions or alliances. A review by the Post-Dispatch shows that roughly a third of the announcements involved developments that never materialized.

At the end of 1997, for example, Chequemate announced a $3 million deal with Poshy Homes of Singapore for the sale and distribution of 3-D imaging systems in Asia. Chequemate said the contract called for delivery of at least 8,250 units - 500 to 1,000 a month - and reported that shipments had begun.

Those sales never showed up in its revenues. And the Post-Dispatch also could not find any record of Poshy Homes, which Chequemate described in its release as a property developer in Singapore and Malaysia, a consumer electronics wholesaler and retailer, and a maker of Chinese dessert.

Boatright was thrilled, then puzzled, by the press releases. He had the design file for the updated 3-D system, but he had not been asked to forward it to a manufacturer for large-scale production.

"It was always going to happen, just as soon as we signed the next deal," he said.

Chequemate announced in spring 1998 that it would launch a 3-D television network, available through cable and satellite services. Later that year, it bought a company that provided pay-per-view movies in about 3,000 hotel rooms and said it would offer its 3-D programming through those outlets.

That November, Chequemate hired a new chief executive, J. Michael Heil, a veteran of several broadcast-related businesses.

Shortly after he took over, Chequemate announced it had signed a deal to buy Hot Pix Inc.'s library of more than 1,000 movies. Chequemate said it would "enhance" the films for its new 3-D network.

"The pending acquisition is expected to have a significantly positive effect on the future revenues and asset valuation of the company," Heil said in announcing the deal.

Corporation records in Nevada show that a few months before the deal, a company with a similar name, HotPix Inc., was created by Chandos Mahon. His role in HotPix was not mentioned at the time Chequemate announced the acquisition, nor was it cited when Mahon later became Chequemate's chief operating officer.

His father, Barry Mahon, had been a film director, but his work, an unusual mix of "sexploitation" movies and children's features, fell far short of 1,000.

Partner in St. Charles




Chequemate announced its first distribution deal with a cable company in April 1999. Its new partner, VisionComm Inc., operated the municipal systems in Kinloch and Wellston and had administrative offices in St. Charles.

VisionComm also served apartment complexes in Texas, California and Michigan.

The next month, Chequemate announced that 3-D Television Co. Ltd. of Japan had agreed to buy at least 35,000 conversion systems and would broadcast Chequemate's 3-D programming to 1.2 million customers in Japan. Two weeks later, Chequemate said Concord Video Production Ltd. of Great Britain had placed an order for at least 20,000 conversion boxes.

Neither deal went through. And British corporation records show no trace of Concord Video Production.

Still, Chequemate's claims of operating a 24-hour, seven-day-a-week 3-D television network technically were accurate. It broadcast limited programming that was accessible to people who owned satellite dishes, knew how to pull in the signal and had one of the fewer than 1,000 converter boxes the company sold.

Just like MTV in its infancy, Chequemate repeated the same loop of programming, largely a collection of old movies that featured 3-D effects. One of the staples was "A*P*E," a 1970s-era film about a 36-foot-tall ape run amok.

In June 1999, Chequemate's shares moved to the American Stock Exchange from the Nasdaq Over the Counter market, providing greater visibility and credibility.

It also moved its headquarters to Marina del Rey, Calif., saying it wanted to be closer to the heart of the entertainment industry as it began developing content for the 3-D network.

It announced in fall 1999 that VisionComm had begun a rollout of the new programming throughout its cable systems.

"We've had an enthusiastic early response to the C-3-D Television Network," said Tom Nix, president of VisionComm, in a release at the time.

Heil, head of Chequemate, was even more exuberant. "Our objective, to achieve a 5 percent market penetration of the 75 million U.S. cable homes, looks easily obtainable."

The agreement between Chequemate and VisionComm called for the 3-D network to be offered first in a Dallas apartment complex at $9.95 a month. An assistant manager at the time, who lived in one of the apartments, said the channel was never offered at the complex.

To raise operating money, Chequemate turned repeatedly to offshore investors, selling stock through private placements.

Heil said he was more interested in building the 3-D network than in selling converter boxes and other products.

"I was a real guy with a real business plan and a real heart to succeed,'' he said.

Half a world away in Australia, Scott Bowen was getting calls from brokers offering a chance to get in early on promising U.S. companies, including Chequemate.

One broker, Robert Mason of Capital Assets Ltd., set up a meeting between Bowen and Lynn W. Briggs, an American whom Mason described as a financial and investment consultant for the firm. In fact, Briggs was an associate of Cragun's.

When Bowen and Briggs met in Melbourne in August 1999, Briggs pitched him shares of Chequemate and other companies. Unbeknownst to Bowen, Briggs had been of one of them. Bowen invested about $365,000 in the firms.

Paper millionaire




The touting of Chequemate extended to stock-related message boards on the Internet. On Jan. 19, 2000, a posting appeared on one of the most heavily trafficked sites, SiliconInvestor.com. A poster who identified himself as Randy Berg, a professional investor from the Pacific Northwest, said he had added to his Chequemate holdings because he heard that a securities analyst at Access 1 Financial soon would put out a "buy" recommendation on the stock.

On Jan. 27, with Chequemate's shares trading at about $2, the board of directors approved a 1-for-4 reverse stock split. The company said the move would lift the price out of penny stock range and attract mutual funds and other big buyers.

"Our business has now matured to a point where we have received considerable interest from institutional investors inquiring about the possibility of adding the company's shares to their portfolios," Heil said in a release.

No institutional investors filed forms with the SEC disclosing purchases of Chequemate stock.

But the reverse split had another effect: It reduced the supply of shares as demand surged. When the reverse split took effect on Feb. 2, 2000, Chequemate's shares closed at $8.25.

The next day, Access 1 issued a glowing report, setting a six-month price target of $24 a share and a 12-month target of $40 a share. Access 1 called Chequemate a 3-D innovator and predicted it would "dominate a multibillion-dollar market."

Within days, Chequemate's share price more than doubled, briefly topping $18.

Its own investment banker, Dutchess Advisors, put out an equally rosy "buy" recommendation with a 12-month price target of $36. Dutchess projected that revenue for 2001 would total $36 million - more than 16 times the actual figure.

Chequemate's soaring stock price made Boatright, who designed the digital 3-D box, a millionaire - at least on paper.

When he tried to exercise all the stock options he had accumulated in nearly four years with the company, he said Chequemate executives rebuffed him.

Boatright wound up suing Chequemate. After going through three attorneys and waiting out several management changes at the company, he dropped his complaint in return for a portion of the shares he was owed.

"The 78,000 shares I finally got out of them, at 18 bucks would have been worth $1.4 million," Boatright said. By the time he could liquidate his holdings, he collected less than $20,000.

End of an era




Meanwhile, Wall Street was in the throes of one of the greatest periods of irrational exuberance in market history. When the bubble burst early in 2000, investors abandoned speculative stocks for safer financial havens.

Chequemate's public relations machine went quiet from mid-March to early May that year. The stock fell from $13 a share to less than $6 in that period, and continued to sink throughout the summer.

The decline in the stock market and Chequemate's share price made it almost impossible for the company to raise more money, Heil said.

"The 3-D thing was working; we didn't have enough time in the bottle to make it happen.''

That August, Chequemate announced a new fall lineup for its 3-D network, including "Rave-O-lution," a dance party show to be shot in nightclubs in the United States and abroad, and "The Big Fat Movie Show," a hosted special.

By September, Chequemate was out of broadcasting. It blamed prohibitive operating and marketing costs, and said its focus would shift to other 3-D products and technology

The company closed its offices in California and retreated to Albany, Ore., near Heil's home.

Then in December 2000, it announced it was buying VisionComm in St. Charles.

Chequemate said VisionComm, with fewer than 2,700 subscribers, was building or negotiating to buy cable systems that would offer access to 50,000 more households.

Chequemate said the "pending acquisitions" would give the new subsidiary a value of more than $50 million. "Their assets create the foundation to our new cable distribution plans and provide us a path to explosive growth possibility in that sector," Heil said at the time.

In fact, VisionComm had almost no cash, a history of losses and little ability to finance big deals. Nearly two-thirds of its annual revenue came from the pay phone business, which has been hit hard by the proliferation of cellular phones.

After the deal went through, Mahon took over as chief executive and Chequemate's headquarters moved to St. Charles.

Still, brokers peddling the shares overseas were bullish on its prospects.

In January 2001, Leif Fredsted got a call in Norway from a broker who identified himself as Richard Swatman, with Capital Assets in Spain.

Swatman recommended Chequemate. Fredsted agreed to buy 250 shares.

Not long after, Swatman called again and urged Fredsted to buy more, saying the shares' value was poised to increase several times over. Only after Fredsted added to his holdings did he learn the shares could not be resold for a year, under the SEC's Regulation S.

Swatman and another broker kept calling with new investment opportunities. Despite some reservations, Fredsted ultimately put more than $100,000 into Chequemate and other companies, all with ties to Cragun.

Meanwhile, faced with delisting from the American Stock Exchange, Chequemate took drastic action. It announced in May 2001 that it would sell 43.1 million new shares - a 51 percent stake in the company - for $3.5 million to a syndicate of investors headed by a Korean company, Another World.

Chequemate said it intended to use $2.5 million of the proceeds to develop, market and distribute 3-D content; $250,000 to repay outstanding debts; and $750,000 for other working capital purposes.

In November 2001, after the stock sale was completed, Chequemate moved its headquarters to the Los Angeles area. Philmoon Seong, who headed Another World, became Chequemate's chief executive.

The company gave VisionComm's cable and telephone operations to creditors rather than continuing to pay the debt associated with them. The managers of the hotel-movie unit took the business back, saying they had not received all the shares promised to them as payment.

Chequemate has not filed a quarterly financial statement with the SEC since August 2002.

Fredsted and Bowen sued Cragun, Briggs, Capital Assets and other defendants, claiming fraud. Their lawsuit in California Superior Court alleged that the defendants raised money from investors by using high-pressure sales tactics and by making false statements and omitting material facts.

A judge last year threw out the case, saying the law the investors relied on in their complaint wasn't applicable to securities transactions. An appeals court affirmed that ruling last month.

Oxford International Management, PT Dolok and Capital Assets are no longer in business. But a succession of new offshore boiler rooms has continued selling shares of U.S. companies with ties to Cragun and others involved in the Chequemate story.

And regulatory agencies in at least seven jurisdictions - Australia, New Zealand, Hong Kong, Spain, the Philippines, Thailand and Indonesia - have warned investors about boiler rooms that pushed Chequemate's shares.

Reporter Christopher Carey
E-mail: ccarey@post-dispatch.com
Phone: 314-340-8291
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By jojo on 8/17/2006 6:46 AM
i wish i had the time & ability to easily read all the legal mumbo jumbo serving as arguments for these investment crises situations. but, like the majority of investor/workers, I DO NOT!
all of you on this site and other places i extend absolute appreciation for your contributions in trying to reform this mess of fiduciary responsiblities.
as these big time finance honchos get to create more & more complex financial instruments that cant be understood by regulators before they do damage to random investors, my gut reaction is our system more and more resembles a type of gulog- unresponsive to the people at risk. justice delayed is no justice!
so how is our system so much better to serve its people than all the others we are shedding blood to replace
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By rtway1 on 8/17/2006 7:00 AM
Bob, where does the case go from here. What is the next time deadline or can they stall further?
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By Phonesll on 8/17/2006 7:16 AM
Anyone who follows CA law knows that the state and federal judiciary is quite liberal and regularly interprets laws incorrectly. My belief is that even though they are lawyers who are now judges, they simply don't like a lot of the laws that are passed. Instead of interpreting them according to the way they are written, they interpret them the way they want them to be. Many findings are overturned on appeal simply because of this. The ninth circus court of appeals is the most overturned judiary branch in the entire country. After reading the Amicus Brief, I'd say the AG did a very nice job of his research and it should go a long way towards overturning the lower court's decision.
Re: California AG Files Amicus Brief Supporting OSTK Position Against Rocker/Gradient; SIA Just Wants To Get Along... By Geektools on 8/17/2006 8:40 AM
Hey guys,

Check out this story John Emshwiller of the WSJ wrote about Ziasun. Maybe we can get him to write about the California AG's brief?

Beyond the SEC's Reach, Firms Sell Obscure Issues to Foreign Investors

By JOHN R. EMSHWILLER and CHRISTOPHER COOPER
Staff Reporters of THE WALL STREET JOURNAL
please visit http://www.wsj.com

http://interactive.wsj.com/archive/retrieve@1.cgi?halbertuy/...

The call couldn't have been timed better. Adrian Lawlor, a Dublin computer-systems salesman, and his wife had just received a $17,000 settlement from a car accident his wife had been in when a broker from International Asset Management in Brussels rang him up. Speaking with an American accent, the broker told Mr. Lawlor he had just the ticket for entering the red-hot U.S. stock market.

"They said they had a wonderful investment opportunity for me," Mr. Lawlor says.

Although "absolutely green" when it came to stocks, Mr. Lawlor decided to sink most of the settlement into the broker's recommendations. That was in 1996, and he was happy for a time and unruffled when his broker moved from Brussels to Barcelona, Spain. But then he tried to sell some shares of a small-cap issue that had begun to stumble. The broker said he would make the sale only if Mr. Lawlor agreed to plow the proceeds -- and $10,000 more -- into shares of a tiny California company called ZiaSun Technologies Inc.

A Matter for the Police

Mr. Lawlor refused and then complained to Spanish regulators. Though the brokerage was based in Barcelona, Spanish regulators said they had no jurisdiction because IAM apparently didn't sell to Spaniards. "If you consider this situation a matter of fraud," Spanish regulators wrote, "the normal procedure is to get in touch with the police."

Instead of calling the police, Mr. Lawlor managed to sell some shares "by complaining bitterly to my broker." But still, he hasn't been able to unload his biggest holding, a stake in a troubled start-up that he bought for $6,000 and that is now worth about $90. He has lost contact with his IAM broker, who went by the name Steve Young.

"An Irish citizen buying U.S. stocks through a dealer based in Spain," Mr. Lawlor says. "The whole experience made me realize how alone I was."

Alone in a growing crowd, that is. Nurtured by economic liberalization and the steady rise in U.S. markets over the past decade, legions of Europeans and Asians have developed a strong appetite for stock investments. Much of the focus is on the U.S.; in just the 12 months ended March 31, foreigners bought $2.8 trillion worth of U.S. shares, up 65% from the previous 12 months, the U.S. Treasury says. After accounting for stock sales, net foreign purchases totaled $159.6 billion during the period. About 85% of that was from Europe.

Many Affiliates, Many Names

But as the global investor base broadens, a big problem has arisen: Investors are often venturing into a gray area that national regulators are either unable or unwilling to police. And that makes them particularly vulnerable to the likes of International Asset Management. This outfit and its many affiliates operating under many names throughout Europe and East Asia buy shares in small, obscure U.S. companies, some linked to IAM through equity or other ties, and then sell the stock to foreigners who often are ill-informed about the companies they are investing in, the difficulty of trading the stock and their own lack of regulatory protection.

IAM officials turned down repeated requests for interviews and have refused to identify the precise location of their Barcelona offices.

In recent years, investors from Athens to Australia have purchased millions of dollars of stock in U.S. companies from IAM and its affiliates. Many, like Mr. Lawlor, have found themselves unable to sell their shares or even get stock certificates, and nearly all are unable to get help from regulators.

Sudden Disappearance

Guy Fletchere-Davies, a 62-year-old carpet manufacturer in Melbourne, Australia, bought ZiaSun and other small U.S. stocks over several years from the Manila office of Oxford International Management, a brokerage firm with ties to IAM. Mr. Fletchere-Davies says his account was passed around among several Oxford salespeople and then to a successor firm. Late last year, "suddenly, the phone calls stopped and paperwork dried up," he says.

The Australian has since embarked on a frantic telephone journey from Manila to Jakarta to Manhattan to the British Virgin Islands in hopes of learning the fate of the nearly $150,000 that was to be his retirement nest egg. "We don't know who to talk to,'' he says. "We don't know where to go."

Nikolas Morokutti, a 26-year-old owner of a computer business in Innsbruck, Austria, thought he knew where to go when he had trouble getting his ZiaSun share certificates from IAM. He called the U.S. Securities and Exchange Commission. The agency, he says, told him that it couldn't help because the shares were issued under Regulation S.

These Regulation S stock sales are allowed under a 10-year-old provision of U.S. securities law that is intended to allow American public companies to raise capital from experienced foreign investors without the onerous registration process required to sell stock in the U.S. Once sold abroad, Regulation S shares cannot legally be resold to U.S. investors for at least a year; they can, however, be sold to other foreigners during that period.

While hundreds of perfectly legal and legitimate S-share transactions occur each year, unscrupulous operators have found a way to exploit Regulation S to their advantage. The way it often works, a promoter that is at least nominally based outside the U.S. buys large blocks of S shares from American issuers at deep discounts and then sells them at huge markups to neophyte investors abroad.

The SEC doesn't comment on specific cases and won't comment on the current state of Regulation S. Non-U.S. regulators aren't much help either, though they periodically warn citizens to avoid boiler-room brokers operating outside of their home country. British stock regulators recently noted a sharp rise in the number of boiler rooms in continental Europe that target English residents. "The firms are not registered here, so it's up to our counterparts in other nations to regulate them, which is very frustrating," says Sarah Modlock of Britain's Financial Services Authority.

A Lot in Common

Over the past few years, IAM and related brokerage firms have marketed shares in about a dozen small U.S. companies. Overseas customers of IAM's offices in Barcelona often receive a monthly publication called "The Capital Growth Report," which mixes glowing reviews of the small companies in IAM's stable with commentary about well-known companies such as Compaq Corp. Several of the small companies have held stock in each other, used the same investor-relations firm or employed Jones, Jensen & Co., a Salt Lake City accounting firm, which is auditor of ZiaSun, a company that looms large in IAM's pitches.

In May, the SEC filed administrative charges against the accounting firm's two named partners, R. Gordon Jones and Mark F. Jensen, for "recklessly violating professional accounting and auditing standards" in an audit of a company unrelated to ZiaSun. Mr. Jensen denies wrongdoing. Mr. Jones didn't return phone calls.

The tale of IAM and its affiliates is deeply entwined with that of ZiaSun, based in Solana Beach, Calif., just north of San Diego, in a modest ground-floo